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#The Optimal Level of CBDC Issuance for Countries: BIS Economists’ Macro Study

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According to reports, BIS economists conducted macroeconomic research on the potential impact of introducing retail central bank digital currencies (CBDCs) and concluded that the o

#The Optimal Level of CBDC Issuance for Countries: BIS Economists Macro Study

According to reports, BIS economists conducted macroeconomic research on the potential impact of introducing retail central bank digital currencies (CBDCs) and concluded that the optimal level of CBDCs is a issuance rate of 40% of gross domestic product (GDP). The report found that if the issuance rate is 30% of GDP, CBDC can increase a country’s output by nearly 6% and achieve welfare benefits of over 2%. However, the author believes that the optimal policy outcome accounts for an even higher proportion of GDP, reaching 40%. This CBDC issuance level is significantly higher than any currently proposed upper limit. For example, it is almost four times the upper limit of the digital euro being discussed, and a report by Morgan Stanley in 2021 found that this would result in a loss of 873 billion euros in bank deposits. However, this high number is due to researchers predicting that consumers will not hold the majority of CBDCs. Their model predicts that the CBDC stock will increase to 30% of GDP overnight, while commercial bank deposits will only decrease by 6%. The difference is that banks convert a significant proportion of their government bond holdings into CBDCs. In fact, the document predicts that bank deposits will return to their levels within six years and grow by 21.5% in the long term. From the government’s perspective, the central bank has increased its government bond holdings by 30% of GDP, which means it is the main bondholder.

BIS research shows that the optimal level of CBDC is 40% of GDP

Introduction

The concept of central bank digital currencies (CBDCs) has gained significant traction in recent times, given the potential benefits it offers to both the government and the public at large. A CBDC is a digital form of a country’s fiat currency that is issued and backed by the central bank. Its underlying technology, blockchain, provides high levels of transparency, security, and reliability, making it an attractive alternative to traditional payment systems. According to reports, BIS economists conducted macroeconomic research on the potential impact of introducing retail CBDCs and concluded that the optimal level of CBDCs is an issuance rate of 40% of gross domestic product (GDP).

The Study’s Findings

The BIS economists found that if the issuance rate of CBDC is 30% of GDP, it can increase a country’s output by almost 6% and achieve welfare benefits of over 2%. However, the author believes that the optimal policy outcome accounts for an even higher proportion of GDP, reaching 40%. This CBDC issuance level is significantly higher than any currently proposed upper limit.

Why 40%?

The researchers predict that consumers will not hold the majority of CBDCs. Their model predicts that the CBDC stock will increase to 30% of GDP overnight, while commercial bank deposits will only decrease by 6%. The difference is that banks convert a significant proportion of their government bond holdings into CBDCs. In fact, the document predicts that bank deposits will return to their levels within six years and grow by 21.5% in the long term.
From the government’s perspective, the central bank has increased its government bond holdings by 30% of GDP, which means it is the main bondholder. The report indicates that the optimal CBDC issuance rate of 40% of GDP would lead to increased output, productivity, and welfare benefits for the country.

Concerns with High CBDC Issuance

However, some experts have raised concerns about the potential impact of high CBDC issuance on the traditional banking system. For example, a report by Morgan Stanley in 2021 found that a CBDC issuance rate of 40% would result in a loss of 873 billion euros in bank deposits, which may destabilize the financial system.

Conclusion

In conclusion, BIS economists’ macroeconomic research found that the optimal level of CBDCs issuance was at 40% of GDP, which is significantly higher than any currently proposed upper limit. While this may lead to increased output, productivity, and welfare benefits, concerns about the potential impact on the traditional banking system need to be considered. It is crucial for policymakers to weigh the pros and cons before implementing any new policies.

FAQs

1. How does CBDCs issuance impact the traditional banking system?
Ans. It can lead to a loss of bank deposits, which may destabilize the financial system.
2. How does CBDCs issuance benefit the public?
Ans. It can lead to increased output, productivity, and welfare benefits for the country.
3. What is the ideal CBDC issuance rate according to BIS economists’ research?
Ans. 40% of GDP.
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